Moral hazard and adverse selection in borrowing

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Reference no: EM131925827

1. Morningside Bakeries recently purchased equipment at a cost of $570,500. Management expects the equipment to generate cash flows of $287,250 in each of the next four years. The cost of capital is 15 percent. What is the MIRR for this project? (Round answer to 1 decimal places, e.g. 15.2%.)

2. What is the difference between moral hazard and adverse selection in borrowing? Explain how asymmetric information may lead to moral hazard and adverse selection. How do financial intermediaries reduce adverse selection and moral hazard problems in borrowing? Explain.

Reference no: EM131925827

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